The cooperative-owned bank will look into Islamic law credentials in financing socially orientated projects in the country

By PRIYA VASU & ASILAH JALIL / Pic By ARIF KARTONO

APPROPRIATE fund allocation is important in Islamic finance, especially for those seeking value-based investments and lending.

As financial mobilisation progresses to full-fledged digital services, more and more users, especially younger customers, want values and ethics incorporated into financial services.

Although the practice of embedding values in Islamic finance is not new, responsible financing over the years has reduced to benefit borrowers and lenders, while other social dedications such as climate change, responsibility towards environment, ethics and corporate governance take a backseat.

Although these non-financial performance indicators do not correspond to profit, these factors are ranked high in individuals’ financial decisions.

Islamic financial services that are built on the same foundation as conventional banks remain a deterrent for the Islamic finance landscape to achieve its full potential, said newly appointed Bank Kerjasama Rakyat Bhd (Bank Rakyat) CEO Datuk Rosman Mohamed (picture), who wants to re-invent the way Islamic finance functions in Malaysia.

“In our blueprint we want to be a sustainable bank. It means we have to ensure Bank Rakyat not only will survive but thrive in the long run in a sustainable manner. We have initiatives now like zero-plastic campaigns — we don’t use plastic bottles anymore,” said Rosman.

In the coming years, Bank Rakyat would look into Islamic law credentials in financing socially orientated projects in the country, particularly in small and medium industries, namely the small and medium enterprises (SMEs).

“More importantly in the years to come, in order for us to sustain in line with our vision of taking care of the planet, we want to focus on how we can help in financing cooperatives, companies and industries that are more towards saving this planet. We want to go for green technology, solar and many other things,” he said.

While providing financial access to SMEs for impactful projects seems important, long-term return of such projects will be thoroughly assessed to limit credit risk.

“Bear in mind, giving out personal financing is totally different than assessing SMEs. At the end of the day, I’m responsible to ensure that we look after the health of these organisations. We can’t be simply giving out financing without knowing what risk we are getting into. So those are the things we are working on,” he said.

The bank’s current impaired financing ratio is at 2%, compared to industry average of 1.6%.

Rosman believes digital initiatives could aid the transformation through product offerings and solutions that reflect its commitment to ethical financing.

The cooperative-owned bank currently allocates 10% of its annual operating expenditure (opex) to drive its digital initiatives. Its 2018 opex stood at RM1.2 billion.

Besides financing social positive projects, it also wants to encourage conversations on reinventing sustainable Islamic finance both domestically and globally.

Rosman said: “We called Islamic scholars all over the world to come here to Kuala Lumpur, and we become the sponsor where we bring up some Islamic financing issues so they can debate and provide a new way of doing things and how we can improve whatever we are doing currently.

“That is how we are going to take leadership and there’s much more we are going to do. We probably will participate in international seminars. We will do more conferences so people know Bank Rakyat in a much bigger way.”

He further added that corporate governance is yet another important area in the quest for the bank to emerge as a sustainable bank.

“Me and my management committee took a pledge that we would go against corruption, we would go against abuse of power, whatever we do we would report to the MACC,” he told The Malaysian Reserve in an interview last week.

By making such a commitment, Bank Rakyat hopes to unlock more values in Islamic finance in the country.